Smorgon Upbeat on 2005 Markets

Smorgon Steel Group says its full year outlook remains positive despite continued pressure from the high cost of raw materials.

Smorgon managing director Ray Horsburgh said the company had achieved higher prices for its products, helping it to rebuild margins which had declined in the preceding year due to the skyrocketing cost of scrap metal and other raw materials.

Horsburgh said hot rolled coil prices were still strong and looked set to rise again in the year ahead.

But, while Smorgon had little room left to increase its tube prices, there was strong demand for the group's products, ensuring healthy volumes.

He said the dumping of cheap imports which impacted the company's results in the last six months, should ease in the second half.

"We have not seen any material weakness in demand for our products and, so long as we do not again experience the irrational trading conditions we faced for much of 2003/04, we expect our second half financial performance to be better than the first half," he said.

Smorgon reported a net profit of $48.09 million for the six months to December 31, 2004, up 94 percent on the previous corresponding period.

Horsburgh said while ferrous scrap prices had not continued with the extraordinary growth rates from the previous year, demand for hot rolled coil was still strong, pushing prices higher.

"But really the story ... is the continued pricing power that we've restored and more stable raw material pricing, albeit very high, but at least we don't have that fluctuation where we have to chase our tail to get recovery in the market place," he told a briefing.

"The market remains buoyant and we expect that to continue right through this calendar year.

"There's no indication from any of our sectors of any slowdown."

Horsburgh while there had been talk of an easing in the housing sector, Smorgon had not noticed any signs of this in its sales.

"We do expect it (housing) to slow but infrastructure projects and engineering works remain strong and more than offset the decline in housing," he said.

The company said the commissioning of a new mega-shredder for its recycling operations in NSW was now scheduled for the June quarter and, once it was complete, two smaller NSW shredders will be relocated to South Australia and Western Australia.

"The delay in rolling out this project is disappointing," Horsburgh said.